The volume of private education loans has grown significantly during the last several years. According to the College Board, private education loan volume increased from $1.3 billion in academic year 1995-1996 to nearly $13.8 billion in academic year 2003-2004.

Several factors contributed to the dramatic rise in private education loans in the past decade:

• Increased costs of higher education
• Stafford loan limits
• Growing enrollment: traditional, adult and continuing education
• Flexibility of new private loan programs
• Competition among lenders

As the cost of postsecondary education continues to rise, and the amount of private education loans borrowed also increases, it’s likely that more students will seek private education loans to finance their educations.

Offered by private lenders, private education loans — also known as alternative education loans — are helpful when other financial aid does not cover students’ educational expenses. Students who do not receive any other financial aid may use private education loans to finance their postsecondary education.

Although private education loans provide increased access to education for many, students should consider all of the advantages and disadvantages of increasing their education loan debt before borrowing private loans. As you discuss with your students the options for financing higher education, USA Funds® University recommends keeping the following considerations in mind:

• Ability to repay. Be cautious when awarding and certifying private education loans for your students. Students who borrow are increasing their overall loan debt, and additional payments could affect their ability to repay their Title IV loans.
• Counseling. Some students apply for private education loans even though they don’t need the funds. Student s may want loans simply because they are eligible for them and because it’s a less expensive way to access cash than other forms of credit. Some schools require students to attend counseling sessions with financial aid administrators before certifying private education loans. If your school requires counseling, it’s a great opportunity to evaluate your students’ needs for additional funds and inform them of their total debt and repayment obligations upon graduation.
• Demonstrated need. You might require that students demonstrate their need for private education loan funds before certifying their eligibility. You can create a form for students to list their resources and expenses. It would be a consistent way to evaluate their needs for additional funds.
• Title IV eligibility. Students who have lost eligibility for other financial aid (for example, those who have exhausted their aggregate Stafford loan eligibility or students who are not meeting the requirements for satisfactory academic progress) may want to use private education loans to fund their education. Additional debt may affect students’ ability to repay other Title IV loans — and affect your school’s cohort default rate.

The USA Funds online course “Private Education Loans” provides additional information, including how to help students choose lenders for private loans, what issues to consider in counseling students, and how to process private loans. The course is one of more than 60 online courses that USA Funds University offers to financial aid professionals and education lenders.